I'm using the latest graphics driver as downloaded from the ati website
(10.6) (http://support.amd.com/us/gpudownload/Pages/index.aspx) and
compiz 0.8.6 from their ppa (https://launchpad.net/~compiz/+archive/ppa)
and, when using gtk-recordmydesktop it now works perfectly.

I'm not sure if it is compiz or the newer graphics driver that is
causing it to work. Can anyone else verify this?

-- 
Recording cause system to slow down with ATI Graphics
https://bugs.launchpad.net/bugs/509111
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